Locally-owned utilities are a rapidly expanding part of Germany’s transition to clean energy

Conventional centralized big power plants are facing record losses to emerging decentralized small providers of renewable energy

No 1180 Posted by fw, November 2, 2014

“On any given day, Johannes van Bergen, director of the municipal utility Stadtwerke Schwäbisch Hall in southwestern Germany, conducts his team’s array of gas, heat, and electricity sources to meet the energy needs of at least several hundred thousand Swabians in the region, as well as about more than 90,000 customers elsewhere in Germany. And every day — in fact, every hour — that energy mix is constantly in flux.”—Paul Hockenos

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The industrial engine of Europe is increasingly powered by backyard windmills and locally owned solar panels. And this complex, patchwork system just might be the future of sustainable energy.

Modest municipal patchwork system is being tested in full – and proven

SCHWÄBISCH HALL, Germany — On any given day, Johannes van Bergen, director of the municipal utility Stadtwerke Schwäbisch Hall in southwestern Germany, conducts his team’s array of gas, heat, and electricity sources to meet the energy needs of at least several hundred thousand Swabians in the region, as well as about more than 90,000 customers elsewhere in Germany. And every day — in fact, every hour — that energy mix is constantly in flux.

Technicians at the town’s smart-grid center monitor and manage the utility’s roughly 3,000 regional energy suppliers: several thousand solar photovoltaic (PV) installations, two wind parks, one gas-and-steam power station, six small hydro-electric works, three biomass (wood pellet), six biogas plants, and 48 combined heat and power plants, as well as other conventional and renewable energy suppliers outside the municipality.

The population that this ballet of coordinated energy sources serves is admittedly modest, but it’s here that the future of Germany’s energy industry is being tested in full — and proven.

The prize-winning utility, one of Germany’s early pioneers in the field, is owned by the old medieval market town of Schwäbisch Hall, north of Stuttgart. Most of the utility’s suppliers are private people, farmers, and small businesses, as well as “energy co-ops,” which are clean-energy facilities owned and collectively managed by a group of local investors.

Locally-owned utilities are part of Germany’s coordinated transition to clean energy

“It’s a complex work of art,” says van Bergen about Stadtwerke Schwäbisch Hall’s daily managing of the county’s energy supply. “Local utilities and citizen-owned energy sources are just the right fit for Germany’s Energiewende,” he says, referring to the German term for the country’s coordinated transition to clean energy. One of the crucial take-aways from Schwäbisch Hall — and Germany’s renewable energy revolution — is that small can be big, and become much bigger quickly.

In just 12 years, Germany has replaced 31 percent of nuclear and fossil fuel energy with green power

In just a dozen years, industrial-powerhouse Germany has replaced around 31 percent of its nuclear and fossil fuel generated electricity with green power, produced overwhelmingly from moderately sized onshore wind, solar PV, hydro, and bio-energy installations — an achievement no one predicted when the Energiewende commenced in 2000.

Germany’s goal is to cut carbon emissions by at least 80 percent by 2050

Germany’s goal is to cut carbon emissions by at least 80 percent by 2050. Berlin is doing this at the same time that it’s phasing out of nuclear power, a process set in motion by Germany’s Social Democrat-Green government 14 years ago, but accelerated by an originally skeptical Merkel after the Fukushima disaster in 2011. All of Germany’s political parties are behind it, though there are different visions: from go-slow conservatives to the full-speed-ahead Greens.

With more aggressive transition, Germany could be completely renewable by 2035-2040

That means that around noon on days that are both sunny and windy, the country’s share of renewable power now shoots up to above 70 percent. Some experts argue that if the Energiewende were pushed forward with more resolve — coupled with energy savings and an expanded power grid in Germany and across Europe — Germany could go completely renewable by 2035 or 2040. (By 2030, the municipality of Schwäbisch Hall will draw on green power and heat for all of its needs. Chancellor Merkel’s government is more conservative in its projections — and policies — looking to do so sometime after 2050.)

From big, centralized power plants, the new energy system includes more than 2 million small and medium-scale suppliers

Germany’s whole power supply — and the way it’s managed — looks very different than it did not so long ago. In contrast to the big, centralized power plants that could meet demand with roughly the same, regular supply day-in and day-out, the new German system is increasingly a dynamic, decentralized patchwork that includes more than two million small and medium-scale renewables producers — businesses, villages and towns, co-ops, individuals, green investment funds, and farmers — whose numbers grow by the month.

Today, electricity is generated in and traded from locality to locality, throughout the country via a smart-grid

Their output, and increasingly that of the conventional, too, is distributed through a tightly knit, cross-border smart grid. The composition of supply changes from minute to minute depending on weather, demand, and other factors from one corner of the country to the other. Increasingly electricity is generated in and traded from locality to locality, and even across the country (or countries) via intelligent networks much like that in Schwäbisch Hall and other places in Germany.

No one predicted this scale of locally driven, citizen-led energy boom when the Energiewende began. Even just four years ago, just about everybody involved in the Energiewende thought that big-ticket projects like enormous offshore wind farms planned for Germany’s northern seas and Desertec, the mega-project to import solar energy across the Mediterranean from sprawling concentrated solar power arrays in the Middle East and Northern Africa, would be integral to Germany going renewable.

These projects, however, have flopped spectacularly.

Offshore wind has proven extremely pricey and technologically much trickier than originally assumed, which has led to billions in cost overruns and years-long delays. Germany’s seven operational offshore parks constitute a tiny fraction – just 0.6 percent — of the country’s renewably generated electricity, compared to onshore wind’s 34 percent. The offshore industry claims there’s smooth sailing for offshore wind just around the corner, but it’s been saying that for years.

Meanwhile, Desertec, which was envisioned as supplying 15 percent of all of Europe’s electricity by 2050, hasn’t contributed a single kilowatt to Europe’s power supply five years after its inception — and from the sound of more bad news recently — it may never. The project’s biggest investors are now threatening to pull out, discouraged with the lack of progress and competing solutions to save it. Political instability in the Middle East and North Africa, and grid issues in southern Europe have nipped this grandiose, multi-billion dollar super-project in the bud.

Conventional big utilities are facing record losses to emerging providers of renewable energy

The conventional producers are facing a grim new world of their own. Germany’s “Big Four” utilities — E.ON, EnBW, RWE, and the Swedish-owned Vattenfall — having snoozed through the early phases of the renewables revolution, are facing record losses that have no end in sight. The Big Four’s conventional-energy offerings on the power market are undercut by providers of renewable energy, which costs next to nothing once the investment is made. At best, the big utilities can postpone the day of their inevitable redundancy unless they move into renewables fast. (This year, the Merkel government opened the way for the big utilities to profit from renewable energy production with legislation advantageous to bigger suppliers, but it won’t have an impact for several years, if at all.)

Nuclear power, similarly colossal, is another white elephant on the way out. The cost of new facilities has grown so exorbitant than it’s become nearly impossible to attract investors — a fact of life for Poland, the Czech Republic, China, and the United States, too. In order to finance the a $27 billion plant at Hinkley Point in Somerset, for example, the British government had to promise the French consortium EDF a guaranteed price of $148.64 per megawatt-hour, more than twice the current market rate, and for 35 years.

The locally based, citizen-led transition is doing more than just upend the energy market — it’s also enriching local economies.

The locally based, citizen-led transition is doing more than just upend the energy market — it’s also enriching local economies. A study conducted by the Institute for Ecological Economy Research, an independent German think tank, shows that green energy sales deposited $22.1 billion into the coffers of municipalities like Schwäbisch Hall in 2012, and knock-on business another $31 billion. Germany’s municipalities saved an estimated $7.8 billion in oil, coal, and gas that they didn’t have to import, and a good chunk of the 380,000 Energiewende-related jobs in Germany stem from local enterprises. Municipal utilities are one of the Energiewende’s pillars. All of which might explain why politicians from several of Germany’s parties have said that when in their home districts — even traditionally arch conservative places, like rural Bavaria — their constituents call for more Energiewende.

Germany’s Renewable Energy Sources Act opened the market to a new wave of entrants

How did Germany’s power supply and its suppliers change so dramatically, so quickly? The evolution began in 1998, when the EU mandated the liberalization of Europe’s energy markets. In Germany, where the Big Four owned nearly 90 percent of the country’s power production and most of the distribution networks, this had far-reaching consequences: Forced to unbundle production and distribution, the Big Four relinquished control of the grid, and opened the market to a wave of new entrants.

Then came Germany’s seminal energy legislation, the Renewable Energy Sources Act, put into law in 2000. This secured the cornerstone of the whole project: an un-hyped, government-mandated tariff that guaranteed renewables a fixed, higher-than-market price for 20 years, and created an emphatic incentive to invest in renewables. It stipulated that grid operators buy green energy from producers as small as a Bavarian dairy farmer with a PV panel on his cow shed. The cost of the incentive is tacked onto customers’ bills, which is one factor making Germany’s power among the costliest in Europe. (Energy-intensive industries are exempt from the levy, making their wholesale purchased electricity among the least costly in Europe.)

The same year, the Social Democratic-Green leadership administration also signaled that it would begin phasing out nuclear power, forcing Germany to adapt its infrastructure for the day when its last nuclear reactors splits its last atom.

Technology advances, China’s entry into the market brought prices down and opened the market

Over the course of the 2000s, advances in technology (and Chinese dumping in the PV market) brought down prices — and at the same time increased the efficacy — of photovoltaics as well as that of onshore wind hardware. Today, the price of solar PV hardware has come down so much (and pays off its investment so quickly) that it is barely subsidized.

These were the prerequisites — not, as popular legend has it, Merkel’s Fukushima epiphany in 2011 — that opened the way for private investors to enter the renewable energy market and begin a revolution that is in full swing today. The feed-in tariff — a fixed incentive that bridged the gap between market price and production cost — made it a cinch to get a loan from a local bank for one, two, or 250 solar panels. Municipal utilities also joined in; some of them, like Schwäbisch-Hall, transformed themselves into cutting-edge clean-energy providers. Farmers plastered their barns with PV and thermal solar panels, leased out land to the new wind power industry, and began growing energy crops — like corn and rapeseed — and even producing their own bio-energy. Co-ops and citizen-owned enterprises sprung up from northern Schleswig Holstein on the Danish border to the Black Forest, providing local investors without property a means — known as Bürgerenergie – to invest in renewables and have a say in its management. Whole villages and towns (in fact, 159 of them) pooled monies to accelerate the drive to 100 percent renewable energy.

Merkel’s decision to shut down one-third of nuclear reactors opened the market even wider

In 2011, when Merkel backtracked on her administration’s decision to prolong the lives of Germany’s nuclear reactors, the die was finally, definitively cast. Merkel’s decision to shut down a third of Germany’s nuclear reactors overnight challenged renewables to fill the gap. This has transpired only in part: Renewables now constitute more of the power supply than ever — now more than brown coal or nuclear — but conventional energy is still needed to fill the gap. Unfortunately, it is (dirty) coal — and not (cleaner) natural gas — that has helped renewables cover supply.

Hard to argue with proven performance – renewables are working better than anyone could have predicted

Nevertheless, Germany’s collage, supply-driven power system — for which a master plan never existed — is working, despite the carping of industrial lobbies that this is no way to power an highly industrialized economy. Germany has one of the lowest rates of blackouts in the world, a figure that has improved as more renewables have been added to the mix. And Germany is exporting more electricity than ever before, not importing it, as many critics had predicted. This is happening despite the fact that Germany doesn’t own significant storage capacity for electricity, a precondition it was believed necessary (falsely, argues one German think tank) to operate an energy system with such a high proportion of intermittent, weather-dependent renewables.

“Thinking small might have cracked the renewable energy puzzle”

A power supply based on intermittent sources like the sun and wind that is decentralized and fluctuates to meet demand is hard for many people to get their heads around. It can seem counterintuitive that such a system can provide the stability an industrialized economy demands. But it is working in Germany — better than anyone had predicted. Indeed, it seems that after all of these massive projects that were meant to be the future, thinking small might have cracked the renewable energy puzzle.